As blockchain technology kept gaining momentum and media coverage, so did the number of ICOs being launched on top of this technology. This new type of crowdfunding has taken everyone by a storm and although it does provide a great way for young entrepreneurs to jump-start their companies it also proved to be a honeypot for the scammers.
For the first quarter of 2018, ICOs raised a total of $6.6 billion of funding, which is a stunning 65% increment compared to the last four months of 2017 when coin offerings received a total of around $3.9 billion.
A research conducted by the Wall Street Journal of 1,450 ICOs found that one in five ICOs is a blatant scam. The newspaper reported that 271 of the offerings had major red flags that would indicate big potential for fraud.
WSJ’s study methods included looking plagiarized whitepapers, outrageous promises and profit guarantees (like the PlexCoin, Bitconnect, Davor coin and similar scams did), or anything that’s “off” about the company and team (such as anonymous team with no names or a fake listing of people that either don’t exist at all or have nothing to do with the company).
In total, crypto investors have put $1 billion into fraudulent teams and scams.
This amount exceeds other reported numbers. As mentioned by CNBC, ICO investors have already lost an approximate $273 million when you include the amounts claimed by lawsuits and regulatory actions taking place against ICOs.
The study also states the fact that you can get a whitepaper written for less than $100 online on different freelancing platforms. Once the WH is done, a company just needs to create a basic website, generate marketing hype for the token sale, and watch the money pour in.
Despite these seemingly bleak statistics, ICOs are obviously still very profitable. An early investor in Skype, Mangrove Capital, performed a specialized analysis, the results of which were nothing short of staggering.
Had you invested in every single visible ICO, regardless of whether it turned out to be a fraud or not, you would have made a profit equal to 13.2 times of what you initially invested.
